PROBLEM 1: PRO FORMA STATEMENTS

PRO FORMA INCOME STATEMENT

Sales 26, 451

Costs 19, 206
Net Income 7, 246

Additional Financing Needed:

Net Income 7, 245

less Increase in Equity 1, 590
Total 5, 655

PROBLEM 2: CALCULATING EFN

An increase of sales to 7, 434 is an increase of:

Sales Increase= (7, 434 - 6,300)/6,300
= 18% or .18

PRO FORMA INCOME STATEMENT

Sales 7, 434
Costs 4, 590
Net Income 2, 844

If no dividends are paid, the equity account will increase by the net income, so:
Equity= 5, 900 + 2, 844
= 8, 744

External Financing Needed

EFN= Total assets - total liabilities and equity
= 21, 594 - 21, 144
= 450

PROBLEM 3: CALCULATING EFN

EFN= Total assets - total liabilities and equity

= 98, 000 - 98, 000
=0

PROBLEM 4: SALES AND GROWTH

ROE= NI/TE Sustainable Growth Rate

= 8, 910/56, 000 SGR= (ROE*b)/[1- (ROE*
 = .1591 or 15. 91% = (.1591*.70)/[1-0.1
= .11137/.88863
Plowback ratio = .1253 0r 12. 53%
b= 1-.30
b= .70 Maximum Increase in Sa
= 42, 000 (.1253)
= 5, 262.6

PROBLEM 5: CALCULATING RETAINED EARNINGS FROM PRO FORMA INCOME

PRO FORMA INCOME STATEMENT

Sales 45, 600

Cost 22, 080
taxable Income 23, 250
Taxes (34%) 7, 996.80
Net Income 15, 523.20

taxes (34%)= 6, 664

dividends= (5, 200/12, 936)(15, 524)

= 6, 240

Addition to Retained earnings

= 15, 523.20- 6, 240
= 9, 283.20

PROBLEM 6: APPLYING PERCENTAGE OF SALES

Jordan Corporation
Balance Sheet

Assets Pesos %

Current Assets
Assets 3,050 8.03
Accounts Receivables 6,900 18.16
Inventory 7,600 20
Total 17,550 46.18
Fixed Assets
Net Plant and Equipment 34,500 90.79
Total Assets 52,050 136.97

Liabilities and Owner's Equity

Current Liabilities
Accounts Payable 1,300 3.42
Notes Payable 6,800 n/a
Total 8,100 n/a
Long-term Debt 25,000 n/a
Owner's Equity n/a
Common stock and paid in surplus 15,000 n/a
Retained Earnings 3,950 n/a
Total 18,950 n/a
Total Liabilities and Owner's Equity 52,050 n/a
 PRO FORMA BALANCE SHEET

Assets 18, 170 Debt 5, 980

Equity 12, 190
Total 18, 170 Total 18, 170

PRO FORMA BALANCE SHEET

Assets 21, 594 Debt 12, 400

Equity 8, 744
Total 21, 594 Total 21, 144

e by the net income, so:

Sustainable Growth Rate

SGR= (ROE*b)/[1- (ROE*b)
 = (.1591*.70)/[1-0.1591(.70)]
= .11137/.88863
= .1253 0r 12. 53%

Maximum Increase in Sales:

= 42, 000 (.1253)
= 5, 262.6
PROBLEM 7: EXTERNAL FINANCING REQUIREMENT

Lewis Company
Pro Forma Income Statement
December 31, 20x4
(Million in Pesos)

20x4 (1+g) 1st Pass 20x5 AFN Effects 2nd Pass 20x5
Sales ₱ 8,000.00 1.2 ₱ 9,600.00 ₱ 9,600.00
Operating Cost 7450 1.2 8940 8940
EBIT ₱ 550.00 ₱ 660.00 ₱ 660.00
Interest 150 150 (+)30 180
EBT ₱ 400.00 ₱ 510.00 ₱ 480.00
Taxes (40%) 160 204 192
Net Income ₱ 240.00 ₱ 306.00 ₱ 288.00

Dividends = Php 188

Addition to Retained Earnings = php 99
Change in Interest Expense = php 30

Change in 20x5 dividends = php 24

Change in Addition to Retained Earnings = (42)

Lewis Company
Pro Forma Balance Sheet
December 31, 20x4

20x4 (1+g) additions 1st pass 20x5 AFN Effects

Cash 80 1.2 96
Accounts Receivable 240 1.2 288
Inventory 720 1.2 864
Total Current Assets 1,040 1,248

Fixed Assets 3,200 1.2 3,840

Total Assets 4,240 5,088

Accounts Payable 160 1.2 192

Accruals 40 1.2 48
Notes payable 252 252 (+)51
Total Current Liabilities 452 492

Long-term Debt 1,244 1,244 (+)248

Total Debt 1,696 1,736
Common Stock 1,605 1,605 (+)368
Retained Earnings 939 1,080 -42
Total Liabilities and Equity 4,240 4,421
AFN 667

PROBLEM 8: LONG-TERM FINANCING NEEDED

a. Total Debt = Accounts payable + Long term debt

Total Debt = 375,000 + 105,000
Total Debt = Php 480,000

b. Long Term Financing Needed = Required Increase in Assets – spontaneous increase in Liabilities -
Increase in Retained Earnings
Long Term Financing Needed = 300,000 – 93,750 – 112,500 – 75,000
Long Term Financing Needed = Php 18,750
 PROBLEM 10: ADDITIONAL FUNDS NEEDED

Percent of Sales Method

Cash 5%
Accounts Receivable 30%
Inventory 20%
Current Assets 55%

New Funds Required = Required Increase in Assets – spontaneous increase in Lia

Retained Earnings
New Funds Required = 330,000 – 195,000 – 86,400
New Funds Required = Php 48,600

PROBLEM 9: ADDITIONAL FUNDS NEEDED

Pro Forma Income Statement

Sales 2,000
Net Income 100
Dividends paid 40
Additional Retained Earnings 60

Pro Forma Balance Sheet

ASSETS
2nd pass 20x5 Current Asset
96 Cash 200
288 Accounts Receivable 400
864 Inventory 400
1,248 Total Current Assets 1,000
Fixed Assets 500
3,840 TOTAL ASSETS 1,500
5,088

192
48
252
543 AFN= Projected increase in asset 500
less: increase in liabilities 100
1,492 less: increase in retained earnings 40
2,035 AFN= 360
1,973 PROBLEM 11: PERCENT OF SALE METHOD
1,038
5,046 required new funds
42 = .85 (P10,000,000)- .25 (P10,000,000) - .07 (P110,000,000) (.60)
= P8,500,000 – P2,500,000 – P4,620,000
RNF= P1,380,000
rcent of Sales Method
Accounts Payable 30%
Accrued Expenses 2.50%

Current Liabilities 32.50%

sets – spontaneous increase in Liabilities - Increase in

LIABILITIES AND EQUITY

Current Liabilities
Accounts pay 50
Notes payable 50
Accrued expe 150
Total Current Lia 250
Long-term Debt 400
TOTAL LIABILITI 650
Common stock 560
Retained Earnin 290
Total Equity 850
TOTAL LIABILITI 1,500
P110,000,000) (.60)